Tag: debt repayment

  • Pakistan repays $5.4 billion of $24.6 billion external debt

    Pakistan repays $5.4 billion of $24.6 billion external debt

    The State Bank of Pakistan (SBP) governor revealed that Pakistan’s external debt obligations for Fiscal Year 2024 are $24.6 billion, as stated during the post-Monetary Policy Committee (MPC) meeting on Tuesday.

    Breaking down the figures, the principal amount is $20.7 billion, with an additional $3.9 billion accounting for interest.

    Notably, a total of $5.4 billion has already been repaid, encompassing a $4 billion principal payment and a $1.4 billion interest payment.

    As a result, the outstanding debt now stands at $19.2 billion, with plans to rollover $12.4 billion (with $9.3 billion already confirmed), according to the governor.

    This leaves a net remaining amount of $6.8 billion for the remaining seven months of the fiscal year. This comprises a $4.3 billion principal and a $2.5 billion interest payment.

    It’s crucial to note that the current foreign exchange reserves are relatively limited, standing at approximately $7 billion.

  • Fitch and Moody’s: IMF loan provides temporary relief for Pakistan, but risks remain

    Fitch and Moody’s: IMF loan provides temporary relief for Pakistan, but risks remain

    Fitch Ratings and Moody’s Investors Service issued warnings on Monday regarding Pakistan’s financial sustainability, despite the recent acquisition of a much-needed $3 billion lifeline from the International Monetary Fund (IMF).

    Last week, Pakistan signed a short-term (nine-month) loan programme worth $3 billion with the IMF, as the previous $7 billion programme was prematurely ending on the same day.

    The objective of the new loan programme is to provide the necessary foreign exchange to reopen imports, support listed companies in gradually resuming partially closed production, and stimulate economic activities within the country.

    Additionally, this programme serves as a signal to other donor agencies and friendly nations, which had pledged $9 billion at a Geneva meeting in January 2023, to extend new financing to Islamabad.

    However, the two global rating agencies caution that risks persist for Pakistan’s economy, particularly as the government faces a daunting $25 billion debt repayment challenge in the upcoming year starting in July.

    Krisjanis Krustins, Fitch’s Director of Sovereigns for APAC, emphasised that Pakistan will require significant additional financing beyond IMF disbursements to meet its debt obligations and support an economic recovery.

    While the IMF likely sought and received assurances for such financing, there remains a risk that it could prove insufficient, especially if current account deficits widen again.

    In order to secure the initial agreement with the IMF, Pakistan had to implement measures such as tax increases, spending cuts, and raising its primary interest rate to a historical peak.

    Although the markets responded positively to this initial agreement, leading to a significant surge in stocks and improved performance of dollar bonds, it still awaits approval from the IMF Executive Board.

    Moody’s analyst Grace Lim, based in Singapore, expressed doubts about Pakistan’s ability to secure the full $3 billion IMF financing during the stand-by period of the loan programme. Lim stated that it remains uncertain whether the Pakistani government will be able to secure the complete amount.

    Furthermore, she highlighted that the government’s commitment to implementing ongoing reforms will be tested as the country approaches elections scheduled for October 2023.

    It is worth noting that Pakistan had previously obtained a $1.1 billion loan in August, which was subsequently halted due to Islamabad’s failure to comply with certain stipulated conditions.

    According to Moody’s, the towering $25 billion debt repayment comprises both principal and interest, amounting to nearly seven times Pakistan’s foreign exchange reserves.

    Lim further added that only after the elections will it become clear whether the country will be able to enter into another IMF programme.

    Until a new programme is agreed upon, Pakistan’s ability to secure loans from other bilateral and multilateral partners in the long term will be severely limited, she cautioned.

  • IMF’s disapproval of budget raises odds of default and economic fallout for Pakistan

    IMF’s disapproval of budget raises odds of default and economic fallout for Pakistan

    In a recent report, the International Monetary Fund (IMF) expressed criticism of Pakistan’s latest budget, increasing the likelihood that the lender may withhold the much-needed aid before the bailout programme concludes at the end of June.

    According to Bloomberg, this development could lead to a severe dollar shortage in the first half of the upcoming fiscal year, potentially resulting in a higher chance of default, lower growth, and increased inflation and interest rates.

    The IMF’s critique of the budget stems from its belief that it does not adequately address the need to broaden the tax base and includes a tax amnesty. The current foreign currency reserves of Pakistan stand at $4 billion. However, with approximately $900 million in debt repayment due this month, the reserves will deplete by the end of June unless the expected IMF aid materialises.

    The country faces the challenge of repaying an additional $4 billion between July and December, which cannot be rolled over. Given the projected reserves falling below $4 billion at the start of fiscal year 2024, default seems highly probable, according to the report titled “Pakistan Insight.”

    The absence of an IMF programme would significantly limit the options for obtaining fresh external funding. The report suggests that negotiations for a new bailout agreement with the IMF are unlikely to commence until after the elections in October. Furthermore, even if an agreement is reached, actual aid disbursement under a new programme would not occur until December.

    In the meantime, Pakistan must focus on conserving dollars by restricting import purchases and maintaining a surplus in its current account balance to fulfill its obligations. To avert default in the first half of fiscal year 2024, the country will also need to seek assistance from friendly nations.

    The report warns of severe consequences for Pakistan’s economy if the anticipated IMF aid is not received by the end of June. Import restrictions will need to remain in place, and the State Bank of Pakistan is expected to raise interest rates above the current level of 21 per cent to further reduce demand for imports and preserve foreign exchange reserves.

    The report’s base case assumes that the State Bank of Pakistan will maintain its current policy stance until December, but that prediction relies on the assumption of IMF aid arriving by the end of June.

    Continued import restrictions and a weaker Pakistani rupee are likely to contribute to higher inflation in fiscal year 2024 compared to current forecasts. It is projected that inflation will average around 22 per cent, while increased borrowing costs and limitations on importing raw materials will further hamper production and dampen consumption.

    In addition, if the expected IMF aid does not materialise this month, the report predicts that Pakistan’s growth in fiscal year 2024 will be much weaker than the current forecast of 2.5 per cent.

    Furthermore, the higher interest rates resulting from the aid shortfall will lead to increased debt servicing costs for the government. The report reveals that approximately half of the fiscal year 2024 budget is allocated to debt servicing, exacerbating the country’s fiscal challenges.

    With the IMF aid hanging in the balance, Pakistan faces a critical period in its economic trajectory, where strategic financial decisions, reliance on friendly nations, and stringent economic measures will be essential to avoid further complications and ensure stability in the future.

  • Fitch warns of further depreciation of Pakistani rupee due to $6.7 billion debt payment

    Fitch warns of further depreciation of Pakistani rupee due to $6.7 billion debt payment

    Fitch, the world’s leading credit rating agency based in Hong Kong, said on Friday that Pakistan must pay a total of $6.7 billion in debt payments for the ongoing fiscal year of 2022-23.

    Of this amount, $3.7 billion must be paid by Islamabad this month, with another $3 billion due in June. Krisjanis Krustins, Fitch’s director, warned that these payments could cause the Pakistani rupee to depreciate further, exerting greater pressure on the country’s currency.

    Krustins also revealed that Pakistan expects a rollover of $2.4 billion from China to address its economic needs. However, he emphasised the need for Pakistan to revive its International Monetary Fund (IMF) loan programme.

    Pakistan has been working to restart the stalled loan programme with the IMF. Earlier this year, Saudi Arabia and the United Arab Emirates pledged external funds, but the IMF has demanded that Pakistan “do more” to unlock the loan programme.

    Finance Secretary Hamid Yakoob recently met with the IMF in the US, but the meeting remained unfruitful. The international lender has proposed that Pakistan arrange $1 billion from commercial banks to unlock the loan programme.

  • Pakistan commits to IMF Rs1.27 trillion hike in taxes

    Pakistan commits to IMF Rs1.27 trillion hike in taxes

    Pakistan has committed to increasing Federal Board of Revenue (FBR) taxes by Rs1.272 trillion (almost 2.8 per cent of GDP) and a price increase of Rs4.97 per unit in the remaining three months of the current fiscal year (FY).

    IMF released a document, and it says that the government of Pakistan has agreed to continuous adjustments in electricity tariffs from next year on a monthly, quarterly and annually basis.

    The documents also state that the government would also increase the price of petroleum and oil products (maximum of Rs30).

    The petroleum levy target for the coming year is Rs607bn. The provinces have given an undertaking of Rs570bn cash surplus to the federal government and increase it by Rs729bn next year.

    The government has also set a target of Rs5.963tr (against Rs4.691tr revised target of current FY) in the next year budget for FBR. Additional Rs500bn tax generation through General Sales Tax (GST) and personal income tax reform for FY 2022 budget is also under consideration.

    The government has also given an undertaking to make adjustments in gas tariff and will not consider any tax exemptions or amnesties in the future.

    Also, IMF made detailed audits are a must for the fund allocation to combat COVID-19, which includes contracts and beneficial ownerships of bidding results and medical supplies.

    IMF’s mission chief for Pakistan Ernesto Ramirez Rigo said that despite the hard economic conditions amid COVID-19, critical adjustments in energy tariff are inevitable. The rising circular debt is detrimental to public finance and economic growth.

    He said that these unpleasant changes are necessary and the solution lies in cost recoveries, loss reduction and system improvement.

  • SBP reserves recorded at $12.9bn after $82m decrease

    SBP reserves recorded at $12.9bn after $82m decrease

    The foreign exchange reserves held by the State Bank of Pakistan (SBP) has witnessed a 0.63 per cent decrease on a weekly basis, said a statement issued by the central bank.

    After the decrease due to external debt repayments, the reserves held by the SBP stood at $12,949.1 million, down $82 million, during the week ended on February 4. The SBP reserves were recorded at $13,031.2 million in the previous week.

    Similarly, the foreign exchange reserves of commercial banks also slightly dropped to $7.124 billion from $7.131 billion.

    Earlier this week, Pakistan had approached China to seek relief in debt repayment, a report had claimed. Pakistan had made an informal request to ease terms on the repayment of debt on about a dozen power plants set up under the China-Pakistan Economic Corridor over the past eight years, Bloomberg had reported.

    “The parties have canvassed Beijing’s willingness to stagger debt payments, as opposed to lowering equity returns,” the report said, adding that Pakistan has yet to make a formal offer. The report had claimed that “Pakistan will formally make the request…after it concludes deals with those local power producers to reduce electricity tariffs”.

  • Pakistan wants China to ease terms on debt repayment, says report

    Pakistan has approached China with an informal request to ease terms on the repayment of debt on about a dozen power plants set up under the China-Pakistan Economic Corridor over the past eight years, Bloomberg reported.

    “The parties have canvassed Beijing’s willingness to stagger debt payments, as opposed to lowering equity returns,” the report said, adding that Pakistan has yet to make a formal offer. The report claimed that “Pakistan will formally make the request…after it concludes deals with those local power producers to reduce electricity tariffs”.

    A spokesperson at China’s Ministry of Foreign Affairs said they aren’t aware of Pakistan’s plan to seek debt relief.

    “Energy projects have provided Pakistan with a large amount of stable and low-priced electricity, effectively reducing the overall price of electricity in Pakistan,” the spokesperson told Bloomberg. “China-Pakistan energy cooperation has progressed smoothly and brought about real economic and social benefits,” it quoted the official as saying.

    Pakistan’s power division didn’t respond to the US-based business media outlet for comments.

    According to Bloomberg, an enormous build-out of Chinese-financed power plants in Pakistan, which was originally intended to solve its electricity shortages, has resulted in a surplus that Islamabad isn’t able to afford.

    While Chinese financing has helped Pakistan diversify fuel supplies, it has also resulted in a surplus of electricity, which is problematic for the government in Islamabad because it is the sole buyer and pays producers even when they don’t generate. To help tackle the issue, the government has negotiated with power plants, which produce roughly half of its electricity, to lower rates.

    After these negotiations, the government will approach the Chinese government for debt relief, it added.